LIQUIDITY PROBLEM IN COMMERCIAL BANK/

CHAPTER ONE 1.1   INTRODUCTION Liquidity of banks means “The ease with which banks assets could be converted into cash”. The liquid assets include cash in the banks vault with the central banks and to their government securities that have not been used as these assets is cash.         There are many reasons why a bank should have 0reasonable liquid assets in it assets portfolio, these include to be able to meet prompt demands for deposits withdrawals, that is, the banks must maintain confidence and also be able to utilize profitable opportunities that may come out in future.          However, it should be noted that bank like most other business are profit oriented, operating to make profit for their shareholders. These profits could be realized only if there is enough deposits. The deposits will not come unless the depositors could be assured of the safety of their deposits to be assured. There has to be enough liquidity in the banks.         It is a known fact that action designed to make profit brings about illiquidity in the bank and vice versa. Therefore, equilibrium has to be sought between the two. These two extreme cases have been the constant concern of bank management.         Liquidity management involves provision for deposits withdrawals, short-term cash requirement and cyclical and circular cash requirements. It also involves provisions to meet with legal requirements.         In Nigeria, the activities of the commercial banks are regulated by the banking act of 1970as amended under the control of central bank of Nigeria. The essence of these regulations was to maintain trust and confidence in banking systems, as well as to achieve a specific economic objective. Thus, in the period of mounting excess liquidity, as was the case in the 1970s, banks were equal to a certain percentage of their deposits in liquid for this is known as legal reserve requirement. The components of legal reserve requirements are: cash stabilizations securities issued by the central banks. The liquidity ratio requirement and special deposits.         The rational for the use of these instruments was to map out he excess liquidity in the economy and also to stop the inflationary trend in the economy. The excess liquidity I n the banking sector give rise to inefficiencies in banks operation.         Bank staff was no longer polite to their customers. They become arrogant since they had little outlets to invest money; banks have devised new method of attracting deposits from their customers thus, the recent innovations in the banking sector. 1.2   SIGNIFICANCE OF THE STUDY This research will also help the monetary authorities in no small way towards the formulation and the implementation of their monetary and fiscal policy. Merchant banks in Nigeria and indeed other related countries with similar problems will equally benefit from this project. The research will also serve as a reference point to other researchers. 1.3   OBJECTIVES OF THE STUDY 1)   Identify federal government policies about commercial banks liquidity position. 2)   To identify commercial banks liquidity problems during the period 1988 – 1990. 3)   To find out the effect of the various liquidity of commercial banks on their profitability. 4)   To examine the extent to which banks liquidity problem have affected their loan policy. 5)   To find out the effect of liquidity problems in relation to deposits from customers. 6)   To identify problems of commercial banks with particular reference I.B.W.A. 7)   To examine federal government steps towards solving liquidity problems in commercial banks. 1.4   SCOPE AND LIMITATIONS OF THE STUDY This research work, which is based on the experience of the commercial banks, is for easier collection of data; two banks are chosen from the whole commercial banks in the country. These two banks are selected from both jointly owned with foreign equity banks. These banks are the African continental bank Plc and the International bank for West Africa Ltd (IBWA) respectively. The aim behind choosing these banks is for accurate representation of the capital situation in all the banks. Both those financed within and those 0that can get foreign aid.         Concepts like banks interests’ inflation rates treasury bills and certificate rates, money creation by banks were thoroughly reviewed but not subjected to experifical study in this work.   1.5   DEFINITION OF TERMS BANK DEPOSITS: This is the amount outstanding to the credit of the customers of the bank but must be paid back when demanded. Deposits are not held in trust but are borrowed from customers. This type of deposit includes the deposit. DEPOSIT ACCOUNT: This is an account with the bank, withdrawals from which usually require a period of notice to be given, and on which interest is paid. This type of deposit account includes time and saving although in Nigeria, the operation is different in that, it s operated just like cheque accounts. TIGHT MONEY: An alternative term for dear money. BANKERS ACCEPTANCE: This is a draft that has been accepted by drawee bank. The draft is changed by acceptance by the stamping of the word. “Accepted” across the face of the draft. The signature of a bank officer who has been authorized to assign such documents and brief description of the transaction that led to it. BANKERS UNIT FUND This was introduced into the market in September 1985; it is a scheme under which banks and other financial institutions can invest part of their access liquidity resources. This instrument was designed to channel commercial and merchant banks and other financial institutions. Surplus funds into federal government stock through the issue of treasury bills and treasury certificates. TREASURY BILLS These are short-term instrument normally issued by within the maturity date of 91 days. This instrument is issued by the central banks of Nigeria to finance for the federal government. TREASURY CERTIFICATES These are issued for the same purpose but with a maturity period of one to two years. MONEY AT CALL This is the money lent to the borrowing bank from overnight to about seven days and payable on call. It is thereby as good as each but unlike cash, it earns some interest. TIME DEPOSIT A bank deposit, which can only be withdrawn if prior notice, is given or after expiring of a fixed time. Get the Complete Project Material Now!!!